Manager-Broker Tie No Longer Binds

By IVER PETERSON

Published: February 19, 1989

FOR many years, a real estate brokerage's path to commissions on the sales of cooperative apartments was built on contracts to manage the buildings. That insider's edge led many firms to serve as managing agents for New York apartment houses at little or no profit, or even at a loss, as long as fat brokerage fees were coming in.

Now all that is changing because the insider's edge no longer works as well as it used to. The surge in the number of condominiums and co-ops and the sharp rise in apartment resale values have brought thousands of new brokers into the field, all of them fighting for commissions on sales. The savage competition has put the staid old apartment-management business in turmoil. Some old-line firms are dropping out of management to focus on sales while others are raising fees to make management pay. At the same time, newer firms are crowding in and offering low fees to grab whatever management business they can get to shore up their shallow commission income.

Co-op and condo boards are experiencing the turmoil in many ways. Higher fees are putting a squeeze on tight building budgets. Lower fees often buy less service. And even before the new problems arose, many were unhappy with weak management from companies that were more interested in commissions than in finding them good supers and doormen.

''The business is in flux - the whole business - and it is really not as important to manage a building to increase your sales as it was once thought to be,'' said Henry A. Ashforth Jr., chairman of Albert B. Ashforth, a Manhattan and Stamford, Conn., brokerage firm that recently sold its 56-building management arm to the William B. May Company, an old Manhattan firm.

''In the old days, when you managed a building, your brokers had a better chance of selling the apartments,'' said Mr. Ashforth. ''We found ourselves working hard to manage a good building to get 10 to 14 percent of the sales. For us, it did not make business sense.''

Ten years ago, Mr. Ashforth said, his firm was getting 25 percent of the sales in buildings it managed. Citywide, the problems of scant sales for management firms have, if anything, worsened, brokers say, because of the slowdown in sales of mid-priced condominiums and co-ops.

In recent years several other well-established Manhattan brokerages, including Cross & Brown Company, William A. White and L. B. Kaye Associates, have given up residential management. Douglas Elliman, one of the city's biggest brokerage and management firms, suffered the defection to competing firms of a half dozen top officers last summer, partly as a result of pinched profits from a reduced number of sales.

''One of the misconceptions always was that if you had the buildings you also were able to sell the co-op apartments,'' said Daniel Buckley, executive vice president of Cross & Brown, a major commercial leasing firm in the city. ''But it didn't always work out that way.''

In the meantime, dozens of small brokerages have moved into the management field in response to the growth in owner-occupied apartments in the city, challenging the leaders and, importantly, keeping the industry's fees low.

Mr. Ashforth was blunt about the scenario that would unfold whenever his company would announce a rise in fees.

''Some other people would move in and cut their fees to get the business,'' he said. ''We simply decided that we didn't want to compete with them.''

WILLIAM B. MILLER, president of Brown, Harris, Stevens, one of the industry leaders, suggested that a key to survival in today's combination brokerage and management market was to get the best apartments and insist on a fair annual fee and let the rest ''go with the fly-by-night operators.''

''Why is it happening?'' said Mr. Miller of the changes in the management industry. ''Because we have all these hat-and-bedroom brokers around. They don't have any overhead, they hit the cocktail-party circuit and they pick up listings. You go to a New York cocktail party and the first thing you know the talk gets around to apartments, and everybody knows someone who's selling an apartment or someone who wants to buy one.''

Managing agents perform a wide range of duties for co-ops and condos. They collect monthly maintenance fees or association dues, pay bills, hire and supervise doormen, superintendents and porters, advise boards on major renovations and repairs and deal with a mounting paper burden of city regulations on such matters as health conditions, facade inspections, employee safety and tax collections.

While residential management in New York City is adjusting with pain to the new realities of competition and retrenchment, the business is booming in the rest of the country. The rise of the suburban condominium town-house development has produced more than a tenfold increase in a decade in the number of residential management firms nationally, from about 500 10 years ago to 6,000 today, said Doug Kliene, director of research for the Community Associations Institute, a nonprofit organization of condominium and coop boards of directors.